Budget Processes and Commitment to Fiscal Discipline

Author/Editor:

International Monetary Fund

Publication Date:

July 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper develops a political-economy model of the budget process focusing on the common pool problem of the public budget. We show that the externality arising from the fact that public spending tends to be targeted at individual groups in society while the tax burden is widely dispersed creates a bias towards excessive expenditures and debt. This bias can be reduced by introducing elements of centralization in the budget process, that is, institutional structures that strengthen a comprehensive view of the budget over the particularistic view of the spending ministers and the members of parliament. Using examples from EC countries, we show how budget processes lack or possess such elements. We then present empirical evidence supporting the claim that centralizing elements reduce the deficit bias. The last section concludes with models for reform of the budget process.

Series:

Working Paper No. 96/78

English

Publication Date:

July 1, 1996

ISBN/ISSN:

9781451850079/1018-5941

Stock No:

WPIEA0781996

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

42

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